1. National CMA Practitioner's Convention 20th May 2018
Valuation Rules
National CMA Practitioner's Convention
20th May 2018

2. Valuation Rules CMA (Dr.) Ashish P Thatte
Cost and Management Accountant
Ph: ,

3. Section and Rules
Companies (Registered Valuers and Valuation) Rules, 2017 notified on 18th October 2017
Section 247 also notified on the same date
IBBI is the Authority under the Rules u/s 458 of Companies Act 2013

4. Welcome ! Agenda for the Session: Valuation Rules- Origins
Various Chapters in Rules
Scope of CMAs
Possible Areas and Asset Classes for Valuation

5. What is Valuation and its Scope
Purpose
Law and Regulations
Standards Prescribed/ to be Prescribed
Dispute Resolution Mechanism
Purpose:
noun
noun: valuation; plural noun: valuations
an estimation of the worth of something, especially one carried out by a professional valuer.
"it is wise to obtain an independent valuation"
synonyms:price, value, evaluation, costing, quotation, estimate"you should obtain an insurance valuation on the painting"
the monetary worth of something, especially as estimated by a valuer.
"they will lend up to 95 per cent of the valuation
Laws and Regulations: Companies Act, Income Tax, Wealth Tax, IB Law, FEMA-RBI, SEBI and Stock Exchanges
Standards: Not yet prescribed but is going to play huge role in governing the profession with in Profession
Dispute: Helps in resolving Dispute Resolution Schemes Line NCLT, NCLAT, Mutual Agreement etc.

6. Section 247 and Valuation Rules
1) Where a valuation is required to be made in respect of any property, stocks, shares, debentures, securities or goodwill or any other assets (herein referred to as the assets) or net worth of a company or its liabilities under the provision of this Act, it shall be valued by a person having such qualifications and experience and registered as a valuer in such manner, on such terms and conditions as may be prescribed and appointed by the audit committee or in its absence by the Board of Directors of that company.
(2) The valuer appointed under sub-section (1) shall,—
(a) make an impartial, true and fair valuation of any assets which may be required to be valued;
(b) exercise due diligence while performing the functions as valuer;
(c) make the valuation in accordance with such rules as may be prescribed; and
(d) not undertake valuation of any assets in which he has a direct or indirect interest or becomes so interested at any time during or after the valuation of assets.
(3) If a valuer contravenes the provisions of this section or the rules made thereunder, the valuer shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees:
Provided that if the valuer has contravened such provisions with the intention to defraud the company or its members, he shall be punishable with imprisonment for a term which may extend to one year and with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.
(4) Where a valuer has been convicted under sub-section (3), he shall be liable to—
(i) refund the remuneration received by him to the company; and
(ii) pay for damages to the company or to any other person for loss arising out of incorrect or misleading statements of particulars made in his report.
The highlighted part is Critical and Must be kept in Mind before framing Structure of Law and Legal Provisions

7. Chapter I: Preliminary
Rule 1: Short Title and Commencement
Rule 2: Definitions
Asset Class: “asset class” means a distinct group of assets, such as land and building, machinery and equipment, displaying similar characteristics, that can be classified and requires separate set of valuers for valuation;
(2) Words and expressions used but not defined in these rules, and defined in the Act or in the Companies (Specification of Definitions Details) Rules, 2014, shall have the same meanings respectively assigned to them in the Act or in the said rules.

8. Chapter II: Eligibility, Qualifications and Registration of Valuers
Rule 3: Eligibility for Registered Valuers
Passing Examination
Resident of India
Not Levied Penalty u/s 271J of IT Act
Fit and Proper Person
Partnership Firm can also be Valuer
Company can also be Valuer

9. Chapter II: Eligibility, Qualifications and Registration of Valuers
Rule 4: Qualifications and Experience
Post Graduate with 3 years exp. in specified discipline
Graduate with 5 years exp. in specified discipline
Rule 5: Valuation Examination
All Rights given to Authority (IBBI)

10. Chapter II: Eligibility, Qualifications and Registration of Valuers
Rule 6: Application for Certificate of Registration
Application in Form A (Individual) and Form B (Company or Partnership Firm) of Annex II and some further process to grant certificate
Rule 7: Conditions of Registrations
No Other Assets to be Valued, Comply with Code of Conduct, Partnership and Company to Sign Valuation, Responsibility of Signatory

11. Chapter II: Eligibility, Qualifications and Registration of Valuers
Rule 8: Conduct of Valuation
How to Conduct Valuation
Valuation from another Valuer accepted
Report should include/ Exclude
Rule 9: Temporary Surrender
There is provision to Temporarily Surrender the registration certificate also.

12. Chapter II: Eligibility, Qualifications and Registration of Valuers
Rule 10: Functions of Valuer
Valuer to conduct valuation as per Law
Rule 11: Transitional Arrangements
Up to 30th of September Valuation can be done by anyone wherever it is needed under the Act.

13. Chapter III: Recognition of Registered Valuer Organization
Rule 12: Eligibility for Registered Valuers Organization
RVO can be for Asset class or Classes and should be section 25/ 8 company
A Professional Institute can be RVO
Trusts or Societies are also allowed
Code of Conduct to be enforced
Even present entity can also be RVO but it should comply with rules in 1 year’s time

14. Chapter III: Recognition of Registered Valuer Organization
Rule 13: Application for Recognition
If the Rule 12 conditions are met then application can be made for RVO in Form D
Further Conditions of being RVO
Rule 14: Conditions for Recognition
Governance and Bye Laws to be adopted and followed forever

15. Rule 16: Complaint against registered Valuer or RVO
Chapter IV: Cancellation or Suspension of Certificate of Registration or Recognition
Rule 15: Cancellation or Suspension of Certification of Registration or recognition
Cancelation can be done under Rule 17
Rule 16: Complaint against registered Valuer or RVO
Complaint can be filed against Valuer or RVO by paying Rupees 1,000. If complaint against Valuer then RVO should handle it.

16. Rule 17:Procedure to be Followed for cancellation or Suspension
Chapter IV: Cancellation or Suspension of Certificate of Registration or Recognition
Rule 17:Procedure to be Followed for cancellation or Suspension
Procedure for cancellation of Registration
Punishments to be given by Authority
What if RVO’s registration is cancelled to its Members ?

17. Chapter V: Valuation Standard
Rule 18:Committee to Decide Valuation Standards under Rule 19
Rule 19: Committee to Advise on Valuation Matters
Formation of Committee

18. Chapter VI: Miscellaneous
Rule 20:Punishment for Contravention
Punishment u/s 469(3)
Rule 21: Punishment for false statement
Any Statement knowing to be false is punished u/s Section 448 of the Act

19. Annexure I: Model Code of Conduct
Various Matters Covered
Integrity and Fairness
Professional Competence and Due Care
Independence and Disclosure of Interest
Confidentiality
Information Management
Gifts and Hospitality
Remuneration and Costs
Occupation, Employability and restrictions

20. Annexure II
Form A: Application for Registration as Valuer by an Individual
Form B: Application for Registration as Valuer by Partnership Firm or Company
Form C: Certificate of Registration
Form D: Application for Recognition
Form E: Certificate of Recognition

21. Annexure III: Governance Structure and Model Bye Laws for Registered Valuer Organization
Part I: Governance Structure
Part II: Model Bye Laws

22. Annexure IV: Indicative Matrix on Requisite Qualifications/ Experience in Specified Discipline

23. Annexure IV: Indicative Matrix on Requisite Qualifications/ Experience in Specified Discipline

24. Annexure IV: Indicative Matrix on Requisite Qualifications/ Experience in Specified Discipline

25. Areas for Valuation Under Companies Act 2013
Section 62(1)(c): Valuing Further Issue of Shares
Section 192(2): Restrictions on Non Cash Transactions involving directors
Section 230(2)(c)(v): Power to Compromoise or make arrangements with Creditors and Members
Section 230(3): Scheme of Compromise/ Agreement

26. Areas for Valuation Under Companies Act 2013
Section 62(1)(c): Valuing Further Issue of Shares: Company proposes to increase share capital by way of Rights Issue, Employee Stock Option or to any person by special resolution for cash or other than consideration in Cash

27. Areas for Valuation Under Companies Act 2013
Section 192(2): Restrictions on Non Cash Transactions involving directors: Director acquiring Assets for Non Cash Transactions or Company Acquiring Assets other than cash must be approved by General Meeting and Resolution in General Meeting must be supported by Valuer’s Certificate

28. Areas for Valuation Under Companies Act 2013
Section 230(2)(c)(v): Power to Compromise or make arrangements with Creditors and Members: Kind of Restructuring with creditors or as ordered by Tribunal or under IBC an Affidavit to be submitted along with Valuer’s Certificate

29. Areas for Valuation Under Companies Act 2013
Section 230(3): Scheme of Compromise/ Agreement: Similar to earlier section but when meeting is specifically called by Tribunal then Notice should contain Valuer’s Report

30. Areas for Valuation Under Companies Act 2013
Section 232(2)(d): Report of Expert with Regard to Valuation
Section 232(3)(h): Where Transferee Company is Unlisted, Exit opportunity to shareholder of transferor company
Section 236(2): For valuing equity shares of Minority Shareholders
Section 260(2): Valuation for arriving at reserve price for company administrator

31. Areas for Valuation Under Companies Act 2013
Section 232(2)(d): Report of Expert with Regard to Valuation: u/s 230 when order is made by tribunal for merging companies or division of a company then notice should have valuer’s report along with scheme proposed etc.

32. Areas for Valuation Under Companies Act 2013
Section 232(3)(h): Where Transferee Company is Unlisted, Exit opportunity to shareholder of transferor company: Shareholders of transferor company decides to opt out of merger scheme they should be paid with value of share plus other benefits as per pre determined formula or after a valuation is made

33. Areas for Valuation Under Companies Act 2013
Section 236(2): For valuing equity shares of Minority Shareholders: If a person or group of persons becomes holder of 90% of shares and wants to buy rest of the shares then they should apply to company for buying rest of the shares for price valued by registered valuer

34. Areas for Valuation Under Companies Act 2013
Section 260(2): Valuation for arriving at reserve price for company administrator: Original Section of Companies Act moved to IBC where IRP needs to have certificate of Registered Valuer for arriving at Reserve Price

35. Areas for Valuation Under Companies Act 2013
Section 281(1): Valuation of Assets for submission to liquidator
Section 305(2): Declaration of solvency in case of proposal to wind up voluntarily

36. Areas for Valuation Under Companies Act 2013
Section 305(2): Declaration of solvency in case of proposal to wind up voluntarily: Converted to IBC and Certificate to be obtained under IBC Only.

37. Areas for Valuation Under Companies Act 2013
Section 281(1): Valuation of Assets for submission to liquidator: Moved to IBC and similar provisions in IBC

38. Possible Areas in Valuation
SEBI Takeover Code: Provision for Valuation of Infrequently traded Shares/Frequently Traded Shares
SEBI Issue of Capital and Disclosure Regulations, 2009 : Regulation 69E (Infrequently Traded Shares), Regulation 72 (Preferential Issue), Regulation 76 (Preferential Issue in case of Infrequently Traded Shares)

39. Possible Areas in Valuation
SEBI Takeover Code: Provision for Valuation of Infrequently traded Shares/Frequently Traded Shares: Regulation 8(2)(e)/ 8(4) says since shares are infrequently traded should consider following parameters; Book Value, Comparable Trading Multiples and Other Parameters as are customary: Presently merchant Banker or CA with 10 Yrs Exp.

40. Possible Areas in Valuation
SEBI Issue of Capital and Disclosure Regulations, 2009 : Regulation 69E (Infrequently Traded Shares), Regulation 72 (Preferential Issue), Regulation 76 (Preferential Issue in case of Infrequently Traded Shares): Nothing specified but Merchant Banker or CA like earlier preferred.

41. Possible Areas in Valuation
SEBI (Alternate Investment Funds), 2012 : Category I and Category II AIF valuation needed every 6 months. Registered Valuer not defined
SEBI Regulations for Infrastructure Investment Trusts and Real Estate Investment Trusts: Valuer is as defined in Companies Act, 2013

42. Possible Areas in Valuation
SEBI (Alternate Investment Funds), 2012 : Category I and Category II AIF valuation needed every 6 months. Registered Valuer not defined: Funds privately promoted and not normal funds like MF, Gratuity Trust etc.
Cat I: Funds invests in start ups, social ventures etc.
Cat II: Cat III is for Derivatives and Cat II is other than I or III

43. Possible Areas in Valuation
SEBI Regulations for Infrastructure Investment Trusts and Real Estate Investment Trusts: Valuer is as defined in Companies Act, 2013: InvIT which is like MF registered under SEBI with Min Capital of 10 Lakhs. GMR, Reliance has the InvIT. Valuation to be done every year in 2 months after March

44. Possible Areas in Valuation
SEBI (Sweat Equity Regulations) 2002 : Merchant Banker to obtain Certificate from CA that Valuation is according to AS
SEBI (Delisting of Equity Shares Regulations), 2009: Stock Exchange to appoint Independent Valuer to determine the value of delisted Equity Shares

45. Possible Areas in Valuation
SEBI (Sweat Equity Regulations) 2002 : Merchant Banker to obtain Certificate from CA that Valuation is according to AS: Valuation of Intellectual Property is to be done before Issuing of shares. CA and Merchant Bankers are presently considered for Valuation

46. Possible Areas in Valuation
SEBI (Delisting of Equity Shares Regulations), 2009: Stock Exchange to appoint Independent Valuer to determine the value of delisted Equity Shares: Regulation 23(1) stipulates the same and Regulation 23(3)(b) allows onl CA

47. Possible Areas in Valuation
FEMA: Many Valuations under FEMA
FDI: Valuations under FDI
Income Tax Act: Valuations includes Section 56 of IT Act, Rule 11UA of IT Rules etc.

48. Possible Asset Classes (Section 8A of Wealth Tax Act)
Immovable Properties
Agricultural Land
Coffee, Tea, Rubber, Cardamom Plantations
Forest
Mines and Quarries
Shares, Securities Debentures, Share in Partnership Firm Business Assets including Goodwill
Plant and Machinery
Jewellery
Works of Art
Life Interest, Reversions & Interest in Expectancy
Cardamom: Eliachi

49. Questions?

50. Thanks ! CMA (Dr.) Ashish P Thatte Cost and Management Accountant
Mumbai and Pune
Ph: ,